Facing a Section 95 Insolvency Petition as a Guarantor? Dilip Jiwrajka Preserves Your Right to Be Heard

When a company defaults and the lender turns to the people who signed the personal guarantee, the paper that lands is usually an application under Section 95 of the Insolvency and Bankruptcy Code 2016. On 9 November 2023 the Supreme Court decided a batch of three hundred and eighty four petitions under Article 32 of the Constitution challenging Sections 95 to 100 of that Code. The lead matter is Dilip B Jiwrajka v Union of India, Writ Petition (Civil) No 1281 of 2021, reported as 2023 INSC 1018.

Every petition was dismissed and every provision survived. For a guarantor the reasoning is worth more than the result. The Bench of Chief Justice Dr Dhananjaya Y Chandrachud, Justice J B Pardiwala and Justice Manoj Misra drew a hard line between the fact-gathering stage under Sections 95 to 99 and the adjudicatory stage under Section 100, and read natural justice into the latter (paragraph 86(vii)).

That line is the defence map. It tells a guarantor which objections are wasted on the resolution professional, which must be preserved for the National Company Law Tribunal, and what the interim-moratorium under Section 96 freezes from the date the application is filed. A separate question, whether a guarantee survives approval of the corporate debtor's resolution plan, was settled in Lalit Kumar Jain v Union of India and is noted at paragraph 5 of Jiwrajka; this playbook stays with the Sections 95 to 100 procedure.

The Statutory Position

Part III of the Code governs insolvency resolution for individuals and partnership firms. At paragraph 55 the Court records that under Section 78 the Part applies where the amount of default is not less than one thousand rupees, with power in the Central Government to specify a higher figure not exceeding one lakh rupees. That low floor is why Parliament interposed a resolution professional before the tribunal: the Adjudicating Authority "would be inundated" if every alleged default as small as one thousand rupees had to be judicially determined at the threshold (paragraph 55).

The Code reached personal guarantors by notification. Paragraph 5 records that on 15 November 2019 the Ministry of Corporate Affairs, exercising power under Section 1(3), brought into force Section 2(e), Section 78 (except the fresh start process), Section 79, Sections 94 to 187, parts of Section 239(2) and Section 249. By Amending Act 26 of 2018 Parliament had already amended Section 60, so that the Adjudicating Authority for a personal guarantor of a corporate debtor is the National Company Law Tribunal (paragraph 6).

Six provisions between Section 95 and Section 100 do the work, each with its own clock.

Two features of Section 95 matter before anything else happens. Section 95(4)(b) requires the application to be accompanied by details of the failure to pay within fourteen days of service of the notice of demand, and Section 95(5) requires the creditor to give a copy of the application to the debtor. Rules framed in 2019 under Section 239(2) prescribe the forms, identified at paragraph 77: Form A for the debtor's own application under Section 94, Form B for the demand notice under Section 95(4), and Form C for the creditor's application under Section 95(1), which must carry particulars of the applicant, the guarantor, the debt and the insolvency professional.

Procedure Step by Step

1. Demand notice in Form B. Section 95(4)(b) makes the fourteen-day failure to pay part of what the application must prove.
2. Application in Form C under Section 95(1). Filed before the National Company Law Tribunal, the Adjudicating Authority under Section 60, with a copy to the guarantor under Section 95(5).
3. Interim-moratorium under Section 96(1)(a). It commences on the date of the application, in relation to all the debts, and ceases on admission. No order triggers it.
4. Appointment under Section 97. Where the application came through a resolution professional, the Adjudicating Authority directs the Board within 7 days to confirm no disciplinary proceedings are pending and the Board answers within 7 days; where it came without one, the Board nominates within 10 days of the direction. The Authority then appoints by order under Section 97(5).
5. Examination under Section 99. The professional examines the application within 10 days of appointment. Under Section 99(2) the guarantor may be required to prove repayment by evidence of electronic transfer, encashment of a cheque, or a signed acknowledgment from the creditor. Under Sections 99(4) and 99(5), information sought in connection with the application must be furnished within 7 days.
6. Report to the Adjudicating Authority. It recommends approval or rejection with reasons, and a copy goes to the debtor or creditor under Section 99(10).
7. Order under Section 100(1). Within 14 days of the report the Authority admits or rejects the application. This is the first judicial determination in the sequence (paragraph 86(vi)).
8. On admission. Section 100(2) lets the Authority direct negotiations towards a repayment plan, and Section 100(3) requires the order, the report and the application to reach the creditors within 7 days. The Section 101 moratorium then runs 180 days or until a repayment plan is approved, whichever is earlier (paragraph 20).
9. On rejection for fraud. Where the application is rejected on the report's finding that it was made with the intention to defraud, Section 100(4) requires the order to record that the creditor may file for a bankruptcy order under Chapter IV.

Borrower Defences Available

Use Section 99(2); do not argue jurisdiction to the resolution professional. Paragraph 66 holds that the professional cannot decide whether the debt remains unpaid "in the absence of an opportunity to the debtor to furnish an explanation and to produce material evidencing the payment of the debt", and paragraph 75 treats the right to file such a representation as "sufficient compliance of audi alterum partem requirements" at that stage. Evidence of repayment, part-payment or a settled account belongs here, in writing, inside the seven-day Section 99(5) window.

Resist a roving enquiry. Section 99(4) is prefaced by the words "for the purposes of examining an application", and paragraphs 75 and 78 hold that the information sought must bear a nexus with the application and cannot be of a roving nature, even when sought from a third party.

Ask for a different resolution professional if there is cause. Paragraph 67, relying on Ravi Ajit Kulkarni v State Bank of India, (2021) SCC OnLine NCLAT 641 at paragraph 42, records that Section 98 lets the debtor apply to replace a professional appointed under Section 97. The Court used that route to reject the argument that a creditor-nominated professional is inherently biased.

Do not treat an information utility record as the end of the matter. Section 99(3) says a debtor may not dispute the validity of a debt registered with an information utility. Paragraph 78 confines that bar to the professional's recommendatory function and holds it "cannot operate to bind the adjudicatory function of the adjudicating authority when it exercises its jurisdiction under Section 100".

Save the real contest for Section 100. Paragraph 73 is the operative passage: the Authority "does not mechanically accept or reject applications based solely on the resolution professional's report", but must "actively engage in a fair process, affording the debtor a fair opportunity to present their case". Paragraph 76 adds that it decides "only after looking at the recommendation of the resolution professional and affording full opportunity of hearing to the debtor or the personal guarantor, as the case may be". Whether a debt subsists, and whether the debtor-creditor relationship subsists, are mixed questions of law and fact for this stage (paragraph 74).

Insist on reasons. Paragraph 63 records that natural justice has been expanded to require a reasoned order against a person liable to be affected, the old distinction between administrative and quasi-judicial action having been substantially watered down. A Section 100 order that simply adopts the report, without reasons, is vulnerable on that ground.

Know what the interim-moratorium actually buys. Section 96 is protective and narrower than the Part II moratorium. The third column below is the one guarantors most often get wrong.

Paragraph 57 is why this matters. The words in Section 96(1)(b)(i) and (ii) are "in respect of any debt", and the Court holds they show the interim-moratorium operates "primarily in respect of a debt as opposed to a debtor". Pending legal action in respect of the debt is deemed stayed and creditors may not start fresh action in respect of it, but the guarantor's bank accounts, salary and secured property are not frozen by Section 96. Where a lender has already moved under the SARFAESI Act or before a Debts Recovery Tribunal in respect of the same debt, the date of the Section 95 application is the date from which those proceedings stand stayed.

Recent Tribunal/HC Position

Paragraph 86 lists nine conclusions; five are load-bearing for a guarantor defending a Section 95 application.

Conclusion (i): "no judicial adjudication is involved at the stages envisaged in Sections 95 to Section 99". Conclusion (ii): the professional appointed under Section 97 "serves a facilitative role" and the report is "recommendatory in nature". Conclusion (iii) rejects the submission that the Authority must decide jurisdictional facts when it appoints a professional under Section 97(5), because reading that in "would be to rewrite the statute". Conclusion (vi): "no judicial determination takes place until the adjudicating authority decides under Section 100". Conclusion (vii), the clause to quote at any Section 100 hearing: "the adjudicatory authority must observe the principles of natural justice when it exercises jurisdiction under Section 100".

Conclusion (viii) records that the Section 96 interim-moratorium exists "to protect the debtor from further legal proceedings", and conclusion (ix) that Sections 95 to 100 do not violate Article 14 or Article 21. Paragraph 85 adds a qualifier: the finding of no manifest arbitrariness is "subject to the clarification on the interpretation of Section 99 in the text of this judgement". The clarifications at paragraphs 75 and 78 are ratio, not passing observation.

On the tribunal side, Ravi Ajit Kulkarni v State Bank of India, (2021) SCC OnLine NCLAT 641, is adopted at paragraph 67 for the proposition that Section 98 lets the debtor seek replacement of the professional. On natural justice, paragraph 76 distinguishes State Bank of India v Rajesh Agarwal, (2023) SCC OnLine SC 342: a fraud classification carried "significant material consequences, including the disability on accessing institutional finance", whereas under Sections 95 to 99 "a person is not deemed a debtor" and the interim-moratorium "does not act to freeze the assets and legal rights and title of the debtor".

Where to Take a Grievance

The proceeding itself belongs to the National Company Law Tribunal, which Section 60 makes the Adjudicating Authority for a personal guarantor of a corporate debtor, and the reply to a Section 95 application is filed there. Jiwrajka closes off a writ petition aimed at the appointment stage: paragraph 86(iii) rejects an adjudicatory hearing at Section 97(5).

A grievance about the lender's conduct is a separate track that the Section 96 interim-moratorium does not touch. Complaints against a regulated entity, including banks and non-banking financial companies, are lodged through the Reserve Bank's complaints channel and the Reserve Bank - Integrated Ombudsman Scheme listed there, after the entity's own grievance cell has been approached. An unregistered entity is a matter for the Reserve Bank's sachet.rbi.org.in portal.

Before signing a fresh guarantee it is worth sizing the exposure that Section 95 can later convert into a petition: the personal loan EMI calculator and the prepayment benefit calculator show what the underlying obligation costs over its term, and the debt service coverage calculator shows whether the borrowing company can service it without the guarantee being called at all.

FAQ

Does an application under Section 95 mean I have been declared insolvent?

No. Paragraph 76 of the 9 November 2023 judgement states that under Sections 95 to 99 "a person is not deemed a debtor", and paragraph 86(vi) that no judicial determination takes place until the Adjudicating Authority decides under Section 100.

Can the resolution professional decide that I owe the money?

No. Paragraph 86(ii) holds the role under Section 97 to be facilitative and the Section 99 report recommendatory, and paragraph 54 adds that the professional is "not intended to perform an adjudicatory function or to arrive at binding conclusions on facts".

Am I entitled to a hearing before the application is admitted?

Yes. Paragraph 86(vii) requires the Adjudicating Authority to observe natural justice under Section 100, and paragraph 73 to afford the debtor a fair opportunity to present their case rather than accept the report mechanically. Section 100(1) gives it 14 days from the report to pass that order.

Does the Section 96 interim-moratorium stop the bank from selling my house?

Section 96 stays legal action in respect of any debt from the date of the application, but paragraph 59 notes that the restraint on transfer and alienation of assets in Section 101(2)(c) has no equivalent in Section 96(1)(b). The asset freeze arrives only with the Section 101 moratorium after admission.

What happens if I do not answer the resolution professional's questions?

Section 99(5) requires information sought under Section 99(4) to be furnished within seven days, and Section 99(6) requires the professional to ascertain whether it was supplied. Silence removes the chance, described at paragraph 66, to produce evidence that the debt was paid before the recommendation is written.

My debt is recorded with an information utility. Is the dispute over?

No. Section 99(3) bars a debtor from disputing the validity of such a debt, but paragraph 78 confines that bar to the recommendatory function of the professional and holds it cannot bind the Adjudicating Authority under Section 100. The point survives for the Section 100 hearing.

How long does the whole sequence take once the application is filed?

On the statutory clocks the core sequence runs about 31 to 34 days: up to 7 days for the direction to the Board under Section 97, 7 or 10 for it to respond, 10 for the report under Section 99(1) and 14 for the order under Section 100(1). Those are outer limits, and the Section 96 interim-moratorium runs from the application date until admission.